Apparently, we never learn. Well, we at PSW learn, we've been hedging the crap out of this rally for reasons that should be entirely evident on this chart – earnings are NOT GOOD!

If earnings aren't good, then why are companies racing up to all-time high valuations? Simply because (as I noted yesterday) monetary manipulation is at work.

It's not like we haven't gone along for the ride – we're still up 30.7% in our bullish, Long-Term Portfolio, which is the where the vast majority of our allocations are put to work (see "Smart Portfolio Management" in the PSW Wiki). Sure it's been 15 months now, so less impressive than 30% in a year – but not a bad pace (2% per month), nonetheless.

Our Short-Term Portfolio, where we do our hedging, has taken a beating in February as we have spent a good deal of money adding protective short positions to protect the $150,000+ we gained in the Long-Term Portfolio – just in case the market isn't as safe as people seem to think it is. Our STP has dropped from $204,000 in February (up 104% in the same 15 months) to just $193,720 as of yesterday's close, down $10,000 but still a nice, combined $844,000 – up 40.6% as a pair.

Despite low trading volume, a strong dollar, mixed economic and earnings reports, paralyzing weather conditions throughout much of the U.S., and ominous global news events, stocks continue to march ever higher. The world remains on edge about potential Black Swan events from the likes of Russia, Greece, or ISIS (or lone wolf extremists). Moreover, the economic recovery of the U.S. may be feeling the pull of the proverbial ball-and-chain from the rest of the world’s economies. Nevertheless, awash in investable cash, global investors see few choices better than U.S. equities.

In this weekly update, I give my view of the current market environment, offer a technical analysis of the S&P 500 chart, review our weekly fundamentals-based SectorCast rankings of the ten U.S. business sectors, and then offer up some actionable trading ideas, including a sector rotation strategy using ETFs and an enhanced version using top-ranked stocks from the top-ranked sectors.

Market overview:

Happy days are here again, or so the U.S. stock market would have us believe, as all major indices are hitting or challenging new highs. The S&P 500 long ago eclipsed the 2000 mark and is now holding above 2100. The Dow Jones Industrials is solidly above 18,000. Even small caps and mid caps have joined the new-high party. The NASDAQ, which hasn’t challenged its Internet-bubble high of 5,048 in 15 years, managed to close Monday above 5,000 and seems determined to make its own new high — perhaps this week. As a reminder, next Monday, the bull market will reach its 6-year anniversary.

Stock buybacks and M&A continue at a robust pace, even though these aren’t the most popular uses of cash reserves among activist investors, who tend to prefer capital expenditures, hiring, and increased dividends. Nevertheless, the market has applauded some recent M&A that involved some of our top stock picks. Last week, Valeant Pharmaceuticals (VRX), which is in Sabrient’s annual Baker’s Dozen top picks list this year, spiked +14% after announcing it would acquire former Sabrient favorite Salix Pharmaceuticals (SLXP), which 16 months ago bought another of our former favorites Santarus. Then today, NXP Semiconductor (NXPI), which has been in three consecutive Baker’s Dozen top picks lists, announced it will acquire Freescale Semiconductor (FSL), which is also highly ranked in our system. NXPI was up over +17% for the day.

…

]]>March Madness Begins!

While team Euro's coach Draghi has practically guaranteed an EU victory with a $1.2Tn blast of monetary easing set to begin in March, other countries are NOT going to take this lying down and already we've seen a February easing of reserve requirements by the Chinese team and already, this weekend, they've kicked March off with a surprise 0.25% rate cut and THE GAME IS ON!!!

WHO will devalue their currency most in March? Already Switzerland, Sweden and Denmark are commanding negative rates – that means YOU PAY THEM to hold your money. Monetary-policy makers are seeking to spur spending over saving. The risk is that negative rates backfire and result in even less demand. That could happen if people begin stuffing their cash under mattresses, or if rates below zero eat into the profit margins of banks, which we're already beginning to see, as negative rates distort financial markets.

Willem Buiter, Citigroup’s global chief economist and a former Bank of England monetary policy maker, said in a January note that an interest rate of minus 5% should be no harder to set than a positive rate of 5%.

This is the way monetary policy is heading – it punishes you for NOT putting your money into high-risk assets. In fact, logically, we can't really call stocks high risk if the market always goes up (supported by monetary easing) and rewards you with rising equity valuations while the banks, by comparison, GUARANTEE TO TAKE YOUR MONEY.

This is another reason companies are buying their own stock at record levels ($450Bn last year, which is 8% of the Nasdaq's entire market cap), which has decreased the number of shares available for sale at the same time as cash is being forced into the stock market to avoid the Central Bank tax that is being imposed.

The Central Banks are also artificially depressing bond rates by snatching them up at auction, leaving few of those available to the general public, who then have to bid low rates on the money they lend – even to countries and companies with questionable credit – lest the be forced to put their month back in the market instead or, even worse – IN THE BANK!

Doesn't this begin to sound more like the plot to some dystopian movie than economic reality? It truly is MADNESS…

IN PROGRESS

]]>Everything is AWESOME!

The Nasdaq is about to hit 5,000 and AMZN costs over 200 times what it makes in a year and NFLX costs 100 times what it makes and people think that's AWESOME! After all, Americans love overpaying for things – it makes us feel rich and, if you are part of the investing class, all these inflated stock prices actually help to make us rich – so why complain?

I complain because it's not a SUSTAINABLE rally. I LOVE sustainable rallies – this just isn't one of them and that means we have to be much more cautious in taking on additional risk at these levels. Nonetheless, we've been able to find 10 long plays to add to our Member Portfolios in the past two weeks, which is awesome.

This is the chart that bothers me the most. Earnings can be faked or "managed" quarter to quarter but cash-flow is harder to manipulate and, as you can see, we're breaking new highs when it comes to pricing stocks relative to the amount of real money that actually drops to the bottom line.

It takes the average company 15 years to generate the money you give them for a share, that's a simple return of 6.7%, which is a damned site better than you can do with with "risk free" bonds (3%) or bank interest (0%) so it's not surprising money keeps pouring into the markets – especially as we have painfully learned in the past cycle that bonds are far from risk-free, right?

So money can and probably will continue to pour into the markets because, like Richard Gere, it simply has nowhere else to go. As you can see from this Bloomberg chart, it's that "Fixed Income" retirement money that's driving the flows – take that away and DOWN WE GO!

As long as interest rates (which are also borrowing rates for our Corporate Masters) are kept artificially low by the Central Banksters, they will continue to force money into the markets but, as we have seen over the past year – we've reached the point of diminishing returns on QE and now (…

]]>1.21 TRILLION Dollars!

That's the size of Japan's Pension Investment Fund and, this morning, they raised their allocation for buying domestic stocks from 8% to 25% and that sent the Nikkei (we're short) flying up 200 points, to close at 18,785. That's theoretically $200Bn additional Dollars that will be buying Japanese equities, so of course the market popped on the news. But should it have?

Aside from my minor concern that putting 25% of your pension money into a market that has already popped 30% since October in a country where the rapidly aging population and diminsihing workforce CAN'T AFFORD TO LOSE IT – how about the fact that it was the SAME EXACT ANNOUNCEMENT that popped the Nikkei from 14,529 to 17,520 in October/Novemeber in the first place?

Fortunately for Japanese Central Banksters, you CAN fool some of the people all of the time and re-announcing $200Bn of mindless equity spending did the trick of popping the Nikkei over the top of their trading range. Now we'll see if they can break 19,000 (but we're still betting they won't). Meanwhile let's cheer them on:

That should be good for another 200 points… Meanwhile, we're running out of ways to talk up the S&P at 2,110, maybe we need to break into that Social Security lock box and put that into the market. What? Already taken? Oh well…

We had a lot of fun shorting the index Futures yesterday as I made a call in our Live Member Chat Room to short the spike on the Nasdaq (/NQ) at 4,460 (we got burned at 4,450 earlier) and the Russell at 1,236 and we caught a ride down on /NQ to 4,430 for a $600 per contract gain and the Russell fell to 1,228 for a $800 per contract gain. This morning we got an opportunity to re-short at 1,235 and 4,450…

]]>Where's the volume?

We can't keep running up on no volume and not expect to have a nasty sell-off – that just isn't the way things work. In yesterday's Live Trading Webinar, we discussed our aggressive hedge adjustments even as the market drove on to even higher highs. Of course, that's when buying protection is the cheapest but most traders are reactive and not proactive – so we get to bargain shop by acting a bit ahead of the curve.

Yellen didn't do too much to boost the markets yesterday, but she gets another crack at Congress this morning to refine her statements. On the whole, she certainly put off expectations of the Fed raising rates until about September and, even then, only if the economy continues to improve – which is a questionable notion at this point (see last week's posts on the economy).

Still, we've been threading the needle and playing both sides of the market. At the beginning of the month, for example, while we were still giving out free trade ideas - we gave you a combo play on oil, which was one of our Top Trade Alerts (Members Only) using 10 long USO 2016 12 calls for $5.75 ($5,750) and selling 10 of the 2016 $22 puts for $5.65 ($5,650) for net $100 out of pocket. Yesterday USO closed at $18.04 and the combo closed at net $2,260 – up $2,160 (2,160%) in less than 3 weeks – you're welcome.

Of course, that's nothing compared to our more aggressive call to go long on Natural Gas Futures (/NG) at $2.69. Natural Gas finished the day at $2.90 and, at $100 per penny, per contract, that's a nice $3,100 gain on each contract. We're done with Natural Gas longs but we still have a substantial interest on USO longs in 3 of our 4 Member Portfolios, though we did just stop out of longs on the Oil Futures (/CL) at $49.50 in this morning's chat ahead of inventories.

Chinese stocks came back from a week-long holiday (New Year's) and fell off into the close, …

]]>Look at those makets go!

Nasdaq 4,960 – just 40 points to 5,000 after popping up from 4,600 at the beginning of the month. That will be almost 10% in a month if we pop 5,000 – no wonder no one wants to buy a home or put money in the bank when the stock market spits out 10% monthly gains.

This is, Janet will tell you, perfectly normal folks – stock markets always go up at 100% annual rates in economes with no inflation, don't they? There's nothing wrong with this picture. Don't worry about where all this money is coming from if the GDP is essentially flat – it's delivered by money fairies and it will never, ever, EVER stop because there is no downside to pumping newly created money into the markets to enrich the investing class – none at all….

JUST IN CASE this turns out to be an unsustainable scam that blows up in people's faces – we do have some hedges in our Short-Term Portfolio and we'll be reviewing those in this afternoon's Live Trading Webinar (1pm EST), so tune in for that. As I said yesterday, the gains in our bullish, Long-Term Portfolio have gotten so ridiculous that we should cash them out but who wants to cash out when we (the investor class) are getting all this FREE MONEY?

It's not just Yellen and our Fed, of course. In fact, in the developed World, our Central Bank is one of the only ones that HASN'T made a surprise easing move this year already. A lot of people are expecting a nice surprise from Yellen as she addresses Congress today but Congress is getting nervous that perhaps $5,000,000,000,000.00 is a bit too much risk on the Fed's balance sheet already.

After all – if the Fed ends up taking a loss, it becomes a negative on our Treasury's balance sheet and then our National Budget gets thrown out of whack as the taxpayers get the bill for all the FREE MONEY the Fed has been handing out to the Top 1%. If that happens near an election, it may not be good for the Republican majority. Other than that,

…

]]>You can't argue with a good chart.

All of our indices are ripping up to new highs and don't let the lack of volume bother you – as it doesn't seem to bother anyone else in the media these days. Volume in the first half of Q1, so far, has been about half the rate we had in Q1 of last year and Q4 was no better so maybe this is just the new normal – a rally with nobody actually trading.

Just because no one is buying – it doesn't mean you can't mark up the prices, does it? The only time there is price pressure to the downside is when there is a lot of selling and, so far, no one is selling either – they're just not buying or selling – it's a dead market.

Corporations are, in fact, the largest purchasers of stock – accounting for 200% (not a misprint) of the net inflows into equities. Without companies buying back their own stock at record paces, this market would be dropping like a rock attached to an even bigger rock:

Despit buying back incredible amounts of their own stocks, actual Corporate Earnings have dropped 10% since Q3 from a high of $29.84 on the S&P down to less than $27 per share so far for Q4s reports. 4 x $27 divided by 2,100 = 20.20 – that would be an insanely high p/e for the S&P, where 15 is more common ground. Having a major index that is possibly 33% overvalued is, as they say in Stockholm - not good.

Of course, it's no surprise that earnings are turning down because data is turning down as well, per the Economic Surprise Index we discussed on Thursday as well as the actual US Macro Index, which also SUCKS! This is really not the sort of thing you should be sticking your head in the sand over. If you were driving a car, you would step on the brakes or at least swerve to avoid an obstacle that's clearly in your path – why would you not…

]]>In 2015, Philstockworld.com is focusing on wealth-building techniques which, combined with our winning investing strategies, can help put you on the path to a life of financial independence.

]]>Wheeeee, what a ride!

As you can see from the chart, Greece has been up and down 10% 4 times in 5 days and last week we gave you a Trade Idea for trading Greece long using the GREK Feb (expires today) $11/12 bull call spread at 0.50 to make 100% in 5 days (today) if GREK finishes over $12.

Unfortunately, GREK had a strong open on Thursday and, by the time people could buy it, the spread was 0.60 so, at $12, the gain will only be 66% but those who played the momentum game during the week had several opportunities to engineer a 0.50 spread as the ETF ran up and down the ladder with each new statement by pretty much anyone in Europe with an opinion.

Our other trade idea from that day, that IYT would fall and the Feb $159 puts at $1.20 would double, however, was off by a mile and IYT tested $165 yesterday before calming down to $163.08 despite the now week-long port strike on the West Coast. I can't explain that one, other than maybe we were too far ahead of the curve. If you want to go for it next month, the premise is still valid (our timing was off) and the March $161 puts are now $2 and a trip back to support at $155 would make them $6 – up 200% would take the edge of this week's loss.

Our CSCO spread we discussed that day is up the 4,000% we expected and our UNG March $13/14 bull call spread is on track for a 100% gain so all is not lost. These are your last free trade ideas for the quarter – so try to enjoy them! If you want more trade ideas, you can join us here like our new Member, Verreaul recently did (and thanks for the kind words!):

I have been reading the "free" PSW for about a year and have always liked Phil's style as it closely resembled the way I like to trade (mostly naked put options). I have been a paid subscriber for about 5 weeks and I have been learning a lot from Phil and

Wow, Futures flying straight up now, about 0.3% the other way now – nice morning swing. /NQ testing 4,400 for a fun short with tight stops and /ES 2,099.50 and /YM 18,030 (no short above 18,000) and /TF 1,230. As long as /TF and either /ES or /NQ are below their lines – I'm for shorting any of those 3.

The Russell hit 1,222 (up $700 per contract) and the S&P hit 2,091 (up $425 per contract) and the Dow paid $250 at 17,950 – so the Egg McMuffins are paid for and we can start our trading day.

Of course that's nothing compared to the Trade Idea we gave you yesterday morning (and these newsletters come to you pre-market, every day by SUBSCRIBING HERE) to short Oil Futures (/CLJ5) at $53.50, which are up $3,000 PER CONTRACT this morning at $50.50. That's not bad for a day's work and it keeps our hourly profit rate well over $500 for the day (we had a good start yesterday morning too).

What gave us a quick round-trip this morning was, of coruse, yet another Greece fire. This time it was Germany saying "Nein!" to giving Greece a 6-month loan extension saying Greece's proposal was "not substantial" – meaning it didn't guarantee the Banksters who really run the Government would get paid. "In its rejection, Germany argued that the Greek request doesn't meet the bailout requirements and said the proposal only aims at getting bridging financing without fulfilling its commitments."

I know this may come as a shock to the EU Banksters but, when you lend money to someone at 10-20% interest rates, which they have to pay because you have rated them a terrible credit risk – THE RISK IS THAT THEY CAN'T PAY YOU BACK! What's going on…

]]>Yay, S&P 2,100! Now what?

As we predicted yesterday morning, nothing was going to stop the S&P from banging up to that 2,100 line. Not for lack of trying, either as we had a 22% decline in the Empire State Manufacturing Index and a 2% decline in the Housing Market Index but none of that matters because Greece is going to be fixed again so the markets flew higher – albeit only at the last minute on no volume. Still – it's a pretty picture, isn't it?.

We demonstrated the idiocy of the markets yesterday for our Members in our Live Webinar by scaling into a short position on March Oil Futures (/CLH5), which ran up while we were doing a demonstration on scaling in. We decided to stay short overnight and, this morning, we were rewarded with a $4,000 gain. Now we've flipped to the April Futures (/CLJ5) in our Live Member Chat Room, which we're shorting at $53.50 in anticipation of another nice dip today.

Of course we told you, right in yesterday's morning post (which you can have delivered to you pre-market daily by clicking here) that we were shorting oil at $53.50 and they fell all the way to $51 at 10 am, for a lovely $2,500 per contract gain. By all means though – SAVE your money and DON'T subscribe to the newsletter – I'm sure everyone you read gives you trade ideas that make $2,500 per contract in 95 minutes, so there's no need to read our little ideas.

Of course, $2,500 per contract is nothing compared to Premium Articles, like our "Secret Santa's Inflation Hedges for 2015," which had 4 great trade ideas, two of which are still playable but XHB (Home Builder ETF) isn't, as the 20 2016 $28 puts we sold for $2.25 ($4,500) on 12/21 are already down to 0.70 ($1,400), for a very nice 68.8% gain in just 2 months ($3,100) good thing you didn't waste money on a subscription in December, right?

We were more aggressive than that though, as we suggested pairing it with 20 of the 2016 $28/33 bull call spreads at $3.30 ($6,600) for a net $2,100 outlay on the spread.…

Stocks are hitting new highs across the board, even though earnings reports have been somewhat disappointing. Actually, to be more precise, Q4 results have been pretty good, but it is forward guidance that has been cautious and/or cloudy as sales into overseas markets are expected to suffer due to strength in the US dollar. Healthcare and Telecom have put in the best results overall, while of course Energy has been the weakling. Still, overall year-over-year earnings growth for the S&P 500 during 2015 is expected to be about +8%.

In this weekly update, I give my view of the current market environment, offer a technical analysis of the S&P 500 chart, review our weekly fundamentals-based SectorCast rankings of the ten U.S. business sectors, and then offer up some actionable trading ideas, including a sector rotation strategy using ETFs and an enhanced version using top-ranked stocks from the top-ranked sectors.

Market overview:

Despite cautious earnings guidance and a steady stream of doom-and-gloom in the news from all corners of the globe, the Dow Jones Industrials closed last week above 18,000, while the S&P 500 is pushing for a close above 2100 and the NASDAQ is gunning for 4900. For the week, the Dow gained +1.1%, the S&P 500 +2.0%, and the NASDAQ +3.2%. Furthermore, the S&P 400 Mid caps, the Russell 2000 small caps, and the broad Wilshire 5000 have all achieved new highs, as well. Evidently, U.S. equities remain a relative safe haven for cautious but hungry global investors who have cheap money in their clutches, thanks to global liquidity and currency wars.

Craig Lazzara of S&P Dow Jones Indices penned an article earlier in the month in which he observed that while the S&P 500 total return was -3% in January, the strengthening dollar-versus-euro exchange rate allowed European investors to earn +4% by holding dollar-denominated U.S. equities, as the euro fell -7% against the dollar. So, assuming the dollar continues to generally strengthen against other currencies, the U.S. stands to benefit from global capital flows, even as earnings among multinational U.S. firms encounter headwinds from the same strong dollar. This suggests the potential for near-term expansion in valuation multiples, which is not necessarily desirable. The forward P/E for the S&P 500 is now about 16.5x.

But that is about the only near-term…

]]>Holy cow, look at those indexes go!

With the NYSE finally above our Must Hold line at 11,000 – it may be time to give up on our bearish positions and just "go with the flow" BUT we still have S&P 1,100 and Nasdaq 5,000 to punch through and THEN we can use them as stop lines for more bullish betting.

Not that we haven't made plenty of bullish bets. Our Long-Term Portfolio closed Friday up a whopping 31.4% with $156,886 in gains over the past 14 months. Of course our Long-Term Portfolio is ALL bullish – it's our Short-Term Portfolio that holds our hedges but, fortunately, we also make some nice short-term bullish bets in there as well and that portfolio is up 103.1% since 11/26/13 – a gain of $103,065 off our original $100,000 virtual investment.

We made some aggressive bearish adjustments to the STP on Friday as we anticipated a sell-off after the holidays but, so far – despite Greece being broken again this morning – we're still holding up in the Futures. We did, however, manage to scratch out some Egg McMuffin money this morning in our Live Member Chat Room, picking up oil shorts (/CL) early at $53.50. We just (7:35) exited a round at $52.75 for a $750 per contract gain to start our day.

Not that it's easy money, by the way: We initiated that trade at 4:57 am and it took two and a half hours to make that $750 (and we took entries and exits in between) so certainly this kind of labor isn't for everyone at $250/hr. We also laid out some nice index shorts for our Members, so hopefully we can give ourselves a raise over the course of the day.

Of course, Futures trading is just what we do for fun while we're waiting to see if our Long-Term trades work out. After all, it's taken 14 months to make 31.4% in our LTP – we have to find a hobby to keep us from over-trading our Long-Term positions, right?

The Nasdaq is up over 20% from it's October low, addine $1.5 TRILLION in "value" in less than 4 months. Of course, AAPL contributed 10% of that $181Bn with it's own 32% run from $95 to $126 but we're not here to be skeptical today – we're going to let Dave Fry do it for us:

I noted the other day the Atlantic article asserting the above number is the amount corporations spent buying back stocks since 2004.

It makes QE look like a sideshow. This represents the ongoing bid under the market thanks to ZIRP which makes being anything other than long stocks and bonds wrong.

There’s no question this didn’t have much effect on commodity, currency and some single country markets. But for U.S. investors the message is clear: buy, buy, buy.

Thursday markets belonged to “bad news bulls” since key economic data both sucked and blowed. Jobless Claims jumped to 304K vs 288K expected & prior 279K as finally lost jobs in the energy sector are starting to show up. And, Retail Sales dropped for the second month in a row to -0.8% vs -0.4% expected and prior -0.9%.

Greece seems to be coming to grips with a deal that changes some conditions around

The GREK Feb $11/12 bull call spread is 0.50 and, if GREK finishes over $12 next Friday, you get $1 back. Each 100 option contract is $50 so, if you need to make $500, you buy 10 of them and come back next Friday for your $1,000.

Can something go wrong? Sure, the deal with the EU can still derail and GREK may fall further so you are risking your $500, make no mistake about that but you can always close the spread and, since you are buying the $11 calls for $1.20 and selling the $12 calls for 0.70 and since the $12 calls are all premium and will decay over the next 7 days at 0.10 per day – you should remain in pretty good shape as long as there isn't a drastic drop.

How else can you make 100% in a week? Well, in this morning's news, in our Live Member Chat Room, we noticed the ports on the West Coast are shutting down for 4 of the next 5 days to teach those pesky workers a lesson (they dared to ask for money!!!). The West Coast handles 40% of US Trade so this is not at all insignificant. And who is affected? The Transports, of course!

IYT is pretty high at $160 and just came off $155 so let's say this strike drops them back to $155. Well the Feb $159 puts are only $1.20 and, at $155, they would be worth $4, that's up $2.80 or 250% if our premise wins out. I'd certainly take 1/2 off the table up 100% ($2.40) and put stops on the rest at $2 to lock in an 90% win and, if we hit our $4 goal, that will be $2.40 + $4 back, which is $3.20 average for a very nice 166% gain for the week. Nice work if you can get it…

Again, our premise could be wrong so we don't bet the farm on these trades but, if our farm has 20 pigs and we bet one pig on a bet that doubles – then we have 21 pigs and we're going to have a

…

]]>It's been an impressive rally.

But, as you can see from Dave Fry's SPY chart, the volume is total BS so here we are, back where we have been 5 times since December, at the top of a range that we never quite punch our way out of.

It's been a series of low-volume rallies followed by high-volume sell-offs with bouts of stimulus and Fed-speak talking us off the bottom of our range (S&P 2,000) while it takes nothing but gravity to pull us back from S&P 2,060-85ish.

On our Big Chart, the NYSE usually gives the game away by never quite getting over the Must Hold line at 11,000, with the broadest market index dragging far behind the others. Usually, it's the very volatile Russell 2000 that shows us the way near the tops and the bottoms, either bouncing back at 1,160 or failing at 1,200 – which is what we're looking for today:

If the rally is real, we should quickly get over 1,210 on the Russell (/TF Futures) but, if not, then 1,200 will not hold and it makes a great short line as 1,160 is $4,000 per contract away. It may be a bit early, but TZA (ultra-short on the Russell) is often a fun trade at these levels. Now at $11.68, it's low enough where we don't mind owning it as a long-term hedge so the March $11/13 bull call spread at 0.70, selling the $11 puts for 0.50 is net 0.20 on a $2 spread. You make 10x your money back if TZA is over $13 in 37 days.

When you have a 900% upside on a hedge, you don't have to commit a lot of cash to protect your portfolio – that's what we teach you at Philstockworld.

As noted yesterday, our paired porfolios (LTP and STP) were at $840,000 yesterday morning (up 40%) and they finished the day at $845,000 – up $5,000 (0.5%) on a day when the S&P went up 0.6%. That means, very simply, that we are balanced just a bit less bullish than the S&P.

Have I mentioned that we're short FXI? I'm sure I have and, if not – we are. That short is based on the pretty obvious fact that if Producers are collected 4.3% less for the goods they sell – they are screwed. FXI fell from $70 in 2007 to $24 in 2009 and, since then, has clawed back to $42, so it makes an interesting hedge on China imploding.

This is China's 7th consecutive week of cash injections (over $50Bn) and they are STILL losing ground on prices so we're not terribly impressed – especially since just last week they also did a drastic rate cut that essentially pumped ANOTHER $80Bn into the economy by lowering reserve requirements and that didn't help either.

“Basically, domestic demand is still pretty weak,” said HSBCeconomist Ma Xiaoping. “We still don’t see any positive effects of the stimulus measures put through at the end of last year. Obviously, policy makers need to do more.”

Volatility continues as the parade of mixed earnings and economic reports marches along amidst a backdrop of global unrest and economic uncertainties. This has led to a neutral near-term outlook for both the technical picture and fundamentals-based sector rankings. Nevertheless, the longer-term trends appear to favor further flattening of the yield curve and continued strength in the dollar, gold, volatility, and equities.

In this weekly update, I give my view of the current market environment, offer a technical analysis of the S&P 500 chart, review our weekly fundamentals-based SectorCast rankings of the ten U.S. business sectors, and then offer up some actionable trading ideas, including a sector rotation strategy using ETFs and an enhanced version using top-ranked stocks from the top-ranked sectors.

Market overview:

Last week, stocks finally got it together to register a +3% gain, even though it gave some back on Friday on the heels of a robust employment report that made investors worry that the Fed now has more reason to declare victory in its dual mandate (of unemployment and inflation targets) and raise the fed funds rate. With the big fall in oil prices, consumers are taking their savings from the pump directly into the stores, and retailers reported strong January sales while the ISM Services report clocked in at a robust 56.7.

There was some consternation among investors about the weaker GDP, which registered only 2.6% in Q4 versus the 5% annualized growth in Q3. However, Scott Minerd, CIO at Guggenheim, wrote that all the surprise and fuss completely misses the underlying strength hidden behind the headline number. In particular, although it was falling net exports that subtracted a full percentage point from GDP growth, net exports appeared weak only because imports were so strong, growing at an annualized rate of +8.9%. Moreover, household consumption has been the biggest driver of GDP growth, which is a big positive.

So, consumers are spending, and there are signs that wages are starting to grow, which would further support consumer spending, as would continued strengthening in the housing market. Also, federal, state, and local government spending is on the rise. In addition, global M&A totaled over $230 billion in January, which is 28% more than last January. I also find it fascinating that global semiconductor sales hit a record $336 billion during 2014,…

Volatility continues as the parade of mixed earnings and economic reports marches along amidst a backdrop of global unrest and economic uncertainties. This has led to a neutral near-term outlook for both the technical picture and fundamentals-based sector rankings. Nevertheless, the longer-term trends appear to favor further flattening of the yield curve and continued strength in the dollar, gold, volatility, and equities.

In this weekly update, I give my view of the current market environment, offer a technical analysis of the S&P 500 chart, review our weekly fundamentals-based SectorCast rankings of the ten U.S. business sectors, and then offer up some actionable trading ideas, including a sector rotation strategy using ETFs and an enhanced version using top-ranked stocks from the top-ranked sectors.

Market overview:

Last week, stocks finally got it together to register a +3% gain, even though it gave some back on Friday on the heels of a robust employment report that made investors worry that the Fed now has more reason to declare victory in its dual mandate (of unemployment and inflation targets) and raise the fed funds rate. With the big fall in oil prices, consumers are taking their savings from the pump directly into the stores, and retailers reported strong January sales while the ISM Services report clocked in at a robust 56.7.

There was some consternation among investors about the weaker GDP, which registered only 2.6% in Q4 versus the 5% annualized growth in Q3. However, Scott Minerd, CIO at Guggenheim, wrote that all the surprise and fuss completely misses the underlying strength hidden behind the headline number. In particular, although it was falling net exports that subtracted a full percentage point from GDP growth, net exports appeared weak only because imports were so strong, growing at an annualized rate of +8.9%. Moreover, household consumption has been the biggest driver of GDP growth, which is a big positive.

So, consumers are spending, and there are signs that wages are starting to grow, which would further support consumer spending, as would continued strengthening in the housing market. Also, federal, state, and local government spending is on the rise. In addition, global M&A totaled over $230 billion in January, which is 28% more than last January. I also find it fascinating that global semiconductor sales hit a record $336 billion during 2014,…

I know it's far away and I know it's complicated and I know Fox likes you to think it's simple and the Greek people cheat on their taxes and retire at 40 after living on permanent vacations. If that were true, rather than condemning the Greeks, we should all be adopting their system!

The reality is quite a bit more complex (read my posts for an overview) and, like any Greek Tragedy – the story is replete with heroes and villains and, of course, a sacrifice. In this case it's the Greek people themselves who are being sacrificed on the Altar of Austerity to secure the terrible power of the EU over other subjugate nations.

Of course the US and EU Corporate Media are rooting for the Troika to triumph over the Greeks.

The Troika is a proxy for all of the top 0.01% and the Greeks are the downtrodden masses in the bottom 90%, who have been bled dry by interest on debts they never should have incurred and have been made unpayable by the very contracts they agreed to in order to avoid default on the original, MUCH SMALLER, debt.

Look what the Troika is doing to Greece:

They rolled some but not all of their debt into notes but the notes still have to be rolled over by Greece at market rates. The Greek debt is $360Bn for a nation with 11M people, so $33,000 per person.

The Troika mandated austerity measures that cut Government Spending by 20% and the Government, in turn, cut services to meet harsh mandates for annual debt to GDP ratios.

That caused the economy to contract and 26% of the population are unemployed without benefits.

The Troika puts harsher deadlines

…

]]>What a recovery!

It's even better than the last two recoveries last month but not quite as good as the recovery we had in December. From a Big Chart perspective, using our 5% Rule™, we're still waiting for the NYSE to finally confirm a real rally by going over 11,000 – now just 104 points away!

Still, the rally was good enough that we gave up on our March TZA hedges in the Short-Term Portfolio, which has fallen back to up just 99.7% ($199,725) – down 4.8% since Tuesday's open in our smaller portfolio. Fortunately, however, our much larger and much more bullish Long-Term Portfolio gained $19,585 over the same period, netting us a $14,785 (2%) gain for the week on our primary paired portfolios.

Those of you who followed our call last Friday to go long on the oil Futures at $44.50 (/CL) should be happy to wake up this morning at $52.50 for an $8,000 per contract gain for the week (you're welcome). We took our money and ran on those trades and now we'll see if $50 holds next week and, if it does, we may want to take some more longs.

The long Natural Gas Trade Idea from the same post is still playable with Nat Gas Futures (/NG) at $2.59 this morning. Our target for that trade is $2.70 for $11,000 per contract in gains but the trade idea we put up Friday was for UNG, the ETF that tracks Natural Gas, for those of you who haven't graduated from our Futures Trading Webinars yet.

Bought IRBT from 28.22 – 28.55 after your call Phil, sold at 29.45 for quick trade

…

]]>Does Greece matter?

As you can see from the chart on the right, Greece's $360Bn in debt is mainly owed to the EFSF – the European Financial Stability Facility, which has loaned Greece $162Bn since 2010, rolling over half their debt into this "bailout" fund.

Of course, it's not actually a bailout fund if you have to pay it back, with interest. Fortunately, for Greece, the interest costs are low (2% over EURIBOR, which is almost 0) but that's not really the point when Greece couldn't pay the original debts in the first place so adding more debt and more interest certainly wasn't going to help.

Here's what happened. In 2006, Greece was $200Bn in debt, about 70% of their GDP but it was worse than it looked because, since 2002, Goldman Sachs (GS) had been helping the Government hide debt from the EU by juggling their books. This trick worked until the Financial Crisis, when Greece actually needed the money Goldman was pretending they had (kind of like sub-prime loans here). A new Government was elected, uncovered the plot and Greece's debt suddenly jumped 60%, to $320Bn without any benefit whatsoever from the borrowed funds.

With the uncovered shenanigans, the cost of borrowing shot up for Greece and they were rolling debt over at 10-20%, putting them $30-50Bn more in debt each year on interest alone until the EFSF was formed in June of 2010 and began to roll Greece's debt at more normalized rates. But it was too late – the damage was done because two years of EU dithering had cost Greece $100Bn.

Even worse, the EFSF was a Central Bankster solution and essentially what it did was REWARD the people who sold Greece 20% notes by guaranteeing their EXREMELY RISKY PAPER as if it were AAA-rated.

That's not how bonds are supposed to work! People putting the screws to a country for 20% interest on loans know damned well those loans have a high likelihood of default. Not in the EU, apparently.

And, of course, with Greece trapped in the EU, they couldn't print their own money…

]]>What a wild ride!

As you can see from the 6-month SPX chart on the right, we have a serious Spitting Cobra pattern setting up on the S&P and those babies rarely strike upwards. Until and unless we break that upper downslope, every move up is nothing but a head-fake and yesterday's was a doozy as we were goosed by more monetray meddling – this time by Minn Fed Gov Kocherlakota, who said:

Given my current outlook for inflation, I anticipate that, under a goal-oriented approach, the FOMC would not raise the fed funds rate target this year.

Oil also went flying up and the only Futures play that held up all day was Natural Gas (/NG) which ran up from our $2.69 long all the way to $2.77 before pulling back, good for $800 per contract in gains.

Don't blame me if you missed them, we've been talking about our various longs on oil and oil services all month and just this weekend, in our Top Trade Review, we discussed selling the USO 2016 $22 puts for $5.65 and buying the 2016 $12 calls for $5.75 for a net entry of 0.10. Even if you missed our perfect exit yesterday, the calls closed at $7.95 and the puts closed at $4.30 for net $3.65 – up $3.55 for each dime of cash…

]]>Boy this is fun!

It sure is fun for those of us getting in and out of our Futures trades as the lines have been fairly reliable in the channels as we make lower lows and lower highs on the way down, with plenty of up and down action in between.

While generally, we find choppy markets annoying, when we have choppy action for this long we begin to play for it and then it becomes a great source of profits for us. Just this morning, in our Live Member Chat Room, we were taking full advantage of the gyrations in Oil (/CL), Natural Gas (/NG) and the indexes (/YM, /ES, /NQ and /TF) to make some pre-breakfast profits.

At the moment (7:45), we're short /CL at $51 and short /TF at 1,180 and /NQ at 4,200 and /YM at 17,350 and /ES at 2,025 but long /NG at $2.69 – how's that for confusing? If you want the logic, go to our live chat room and read the discussion but these are our trades and we're sticking with them.

As you can see from our Short-Term Portfolio's balance box, sticking with them has been very, very good to us. That figure is just for our stock an options trades over the past year and doesn't include our Futures trades, which are more like side bets we make for fun. Our much larger Long-Term Portfolio finished the day up 20.3% on that BS surge (the one we are now shorting to lock in our profits) at $601,260, giving us a total of $806K – our best yet on our paired, primary portfolios and up more than 33% in a year.

Like our STP, our LTP is mainly in cash with $565,000 (94%) and, without our "risky" short-term hedges, we used very little margin, just $331,000 of the $1M allocated. This is what we mean when we say we are "Cashy and Cautious" but being in cash doesn't mean we can't participate – it just means we're very careful about how we allocate our resources – staying flexible in uncertain markets.

Volatility reigned in January on elevated volume as stock investors shifted their focus from global events to U.S. earnings reports, which have ranged from amazing (e.g., Apple) to crushing (e.g., Microsoft). Although the earnings reports have brought plenty of surprises, the volatility is no surprise, as I and many other market commentators predicted for the New Year. Still, although the road may be bumpier than the past couple of years, the path of least resistance appears to be up, and the main question is whether small caps and emerging markets will make an attempt to regain past glories or if U.S. large caps must continue to carry the load.

In this weekly update, I give my view of the current market environment, offer a technical analysis of the S&P 500 chart, review our weekly fundamentals-based SectorCast rankings of the ten U.S. business sectors, and then offer up some actionable trading ideas, including a sector rotation strategy using ETFs and an enhanced version using top-ranked stocks from the top-ranked sectors.

Market overview:

The Wall Street Journal reported that the S&P 500 experienced average daily swings of 1.5% during January. If it continues, it would make 2015 the most volatile year since 2011 when the Eurozone crisis hit. Last year, the S&P dropped more than -3.5% in January. This year, the S&P 500 closed the month down -3.1% while German equities closed up +7.2% and the iShares MSCI EAFE Index Fund (EFA) was up +2.2%. It’s pretty evident that this will not be a risk-on, all-boats-lifted kind of year.

After a streak of eight consecutive quarters of earnings growth, the estimates are indicating that the streak may be ending soon. According to FactSet, Wall Street was expecting +4% earnings growth in the S&P 500, but after a rash of downward revisions, overall growth (or lack thereof) is estimated at -2%, with the most optimistic earnings estimates for 2015 have fallen from around $133 average per share to nearly $125, which of course is driven mostly by the pratfall of the Energy sector, falling from a Q1 2015 estimate of +3.3% from several months ago to a current estimate of -53.8%. Harsh.

Already, earnings season has shown major stumbles in names like Caterpillar (CAT), Ford (F), Procter & Gamble (PG), and Microsoft (MSFT). But on the other…

That puts oil up 13.5% in less than 24 trading hours – how's that for a bottom call? As noted in our January Top Trade Review, we pressed our long USO and UCO bets just last week in our Live Member Chat Room and made them our ONLY bets in our $25,000 Portfolio, which will very much reap the rewards this morning. We also have big bets on oil in both our Short-Term and Long-Term Porfolios, some of which we discussed in last week's Live Webinar (replay available here).

We also called a nice bottom in Natural Gas, using the UNG ETF to go long and that one hasn't gotten away – yet. As I often have to remind people: I can only tell you what is going to happen and how to profit from it, the rest is up to you!

It's been a difficult trading environment, to say the least and this will be the first full year featuring our new Top Trade Alerts™ (Members Only) and I look forward to doing these educational review sessions at least each quarter (our last one was Thanksgiving) to review both our trade ideas and our use of options to make those trade ideas as profitable as possible.

Top Trade Alerts are sent out once or twice a week via EMail and Text Message from our Basic and Premium Live Member's Chat Room. These trades are just a very small portion of what we discuss during chat each day, but hopefully a good representative sample of the dozens of trade ideas we share with our Members each week in our Live Member Chat Room as well as our Weekly Live Webinars (Thursday's replay can be seen here).

Keep in mind these are just snapshots of trades as of today – it's up to you to take good trades off the table and cut the losses (or make adjustments) on ones that go bad. We're always discussing adjustments in our Live Member Chat Room – join us there for follow-ups.

For example, last time we did a review, we left off with an EWJ trade in which we had the Dec $12 puts at 0.25 and they were "only" up to 0.47 (up 88%) on 11/22 but EWJ continued down towards our goal at $11, finishing Dec 16th (expiration day) at $11.15 giving us a final price of 0.85 – up 0.60 (240%) per contract! That was still almost a double from our November Review – who says these things aren't worth going over???

On Nov 6th, however, we had an eventual fail on our BTU spread – it was the Dec $10/11 bull call spread for 0.65 and it did start out well as BTU hit $12 a week later but it never made it over and ended up falling back to $8 – causing the spread to expire worthless for those who held on to the bitter end. This is why setting stops on…

]]>

But I don't know if I can
Open up enough to let you in
Here come those tears
Here come those tears again
Just walk away - JB

And, of course, after a BS rise in the markets on Thursday, we are giving up essentially all of those gains in the Futures (8:15) ahead of the Preliminary Q4 GDP Report, which has NO chance of matching the 5% Q3 Report and may even disappoint those looking for 3.2% growth based on the earnings reports we've seen so far.

In short, the Fed is so terrified of failing our weak bounce line on the S&P (now 2,006), that they feel the need to talk up the market every time it's threatened. Rather than take comfort in the fact that "the Fed has our backs" like most traders seem to – we at PSW are wondering what exactly are they trying to protect us from and, more importantly, what happens to us if they are not up to the task?

As Genesis (the group, not the bible) reminds us "It's an illusion, it's a game or a reflection – of someone else's name" and more importantly, they warn us "Baby, there's a hole in there somewhere." We KNOW there's a hole in there somewhere but we also know the Central Banksters are hiding something and, rather than be encouraged by this and going all in on the markets – we are remaining "Cashy and Cautious" for the 2nd quarter in a row.

8:30 Update: I was going to say "Maybe we're wrong" but screw that, we're not. GDP just came out at 2%, close to 50%…

From ETFTrends.com: “Betting on insider buying is again proving to be an efficacious strategy as the Direxion All Cap Insider Sentiment Shares (NYSEArca: KNOW) has been noticeably less bad than the S&P 500 to start 2015. Add to that, investors are warming to the merits of KNOW’s insider sentiment strategy.” [Editor's note: KNOW tracks the Sabrient Multi-cap Insider/Analyst Quant-Weighted Index (SBRQAM)]. Read article

(ETFTrends.com by Todd Shriber): “Betting on insider buying is again proving to be an efficacious strategy as the Direxion All Cap Insider Sentiment Shares (NYSEArca: KNOW) has been noticeably less bad than the S&P 500 to start 2015. Add to that, investors are warming to the merits of KNOW’s insider sentiment strategy.” [Editor's note: KNOW tracks the Sabrient Multi-cap Insider/Analyst Quant-Weighted Index (SBRQAM)]. Read article

Looks like it's just those last 3 weak bounce lines holding us up but, as noted in previous posts, we already flipped back to bearish as our strong bounce lines failed – that's what they are there for! Tuesday, for example, I told you we were shorting Dow Futures (/YM) at 17,550 and yesterday we fell below 17,100. Futures contracts on the Dow pay $5 per point so that 450-point dip was good for a quick $2,250 per contract profit in less than 48 hours. Our call to short /TF (Russell Futures) at 1,200 have already produced $3,000 per contract gains as well.

I sent out an Alert to our Members from our Live Member Chat Room this morning calling for long plays on /NG (Natural Gas Futures) at $2.85 and /CL (Oil Futures) at $44.25 and we've already had some nice runs and are looking for re-entries ahead of today's Natural Gas Report (10:30).

On the whole, the Global Macros are still weak, US Data is Weak and Earnings are disappointing so we see no reason to expect those weak bounce lines to hold up, which makes bullish commodity betting very tricky.

As noted by Dave Fry, perhaps the 200 dma at 1,988 (our 7.5% line on the Big Chart) will provide some support but, if not – we're likely to see the 5% line tested at 1,942.50. Coming off 2,000 this morning, the /ES short would pay $2,875 per contract for that drop or you could just pick up the SPY Feb $198 puts at $3, which would be $3.75 in the money at $194.25 for a 20%(ish) gain on a 2.5% drop in the S&P – that's pretty good leverage for a hedge.

IN PROGRESS

]]>Apple knocked it out of the park!

Last night, AAPL reported the most profitable quarter of any company in history – EVER!!! – making $18.04Bn in the last 3 months of 2014. That's $8.3M per hour in PROFIT with almost $1Bn/day in revenues ($74.6Bn for the quarter). The company made $3.06 for each $109 share and that was already up 10% since last Q.

I'm sure NOW it is obvious why AAPL was our Trade of the Year in 2012 ($52 when we made that pick) as well as 2013 ($72) and again this December, even though it was alread hitting $110 after the split. Of course, we didn't just play the stock at PSW, we played the options and our Top Trade Idea for Dec 17th was:

20 2017 $90/120 bull call spreads at $13.50 ($27,000)

20 short 2017 $85 puts at $9.50 ($19,000)

Our 2013 Trade of the Year is pictured on the left and made the full 614% expected and our 2014 Trade of the Year parlayed that money into the following:

10 2016 $450/600 bull call spreads at $65 ($65,000)

10 short 2016 $450 puts for $41 ($41,000)

That trade is already 100% in the money and will make the full $126,000 (525%) if AAPL holds $85.72 (post split), which is why we were able to be be nice and aggressive with our 2015 Trade of the Year, going for another 650% if AAPL is…

]]>Big Misses!

CAT's earnings are a grave concern as they are generally a good indicator of the Global Economy and the low demand for oil and other commodities led the mega-corp to miss by 20% with a 25% drop in Q4 profits. MSFT and PG were also disappointing but you can watch the MSM for that analysis, so I won't bore you.

What I will tell you is how you can make HUGE amounts of money off this information and that was easy as we simply shorted they /YM Futures this morning in our Live Member Chat Room at 17,550 and already the Dow is down another 150 points at 17,400 for a very nice $750 per contract winner. This is one of the best uses of the Futures, getting a huge jump on people who have to wait for 9:30 to trade the market – HOURS after the news comes out.

Of course we got the MSFT news last night and MSFT is a Dow component and, of course, 17,600 is the Must Hold line on our Big Chart, so it was a natural shorting line, per our 5% Rule™. Now that we've had our morning fun, we'll have to see what sticks but we already shorting the Russell (/TF Futures) at 1,200 as well as we don't think much of the data we're seeing so far:

What it means for the markets is hard to say on day one of the new Government but it's not looking good for the people who Greece still owe over 300Bn Euros to. As you can see from this chart, that's 170% of their GDP and, frankly, its unpayable and it's ridiculous to pretend otherwise. Yet, for the past 6 years, instead of helping Greece out by forgiving or refinancing the debt at low rates, the EU has lent them more money in exchange for ramming harsh austerity measures down their throats.

What a shocker that 6 years of bottowing another $130Bn without using any of it to boost the economy (cutting back all stimulus spending, in fact) did not, in fact, lead to an economic recovery in which the debt was paid off. In fact, the debt is 70% worse and that doesn't go away and the now the lender (the ECB and their Bankster Buddies) want MORE austerity to make sure they get paid first.

“There will neither be a catastrophic clash nor will continued kowtowing be accepted,” Tsipras, 40, told crowds of cheering supporters in central Athens late Sunday. “We are fully aware that the Greek people haven’t given us carte blanche but a mandate for national revival.”

Of course, he hasn't actually been sworn in yet. The Syriza party is a Socialist, almost Marxist party – they believe in taxing the rich and raising minimum wages – and not in the wimpy way the US Democrats believe in it – it's going to be a very interesting couple of weeks.

Last week, the S&P 500 put an end to its streak of weekly losses, despite giving back some gains on Friday. Thursday provided the big catalyst, with the ECB’s announcement of its bold new monetary stimulus plan. Investors were cheered and soothed for the moment. And U.S. fundamentals still look strong. But with Greece trying to turn back time, with volatility elevated (and likely to continue as such), and with the technical situation still dicey, the near term outlook is still worrisome.

In this weekly update, I give my view of the current market environment, offer a technical analysis of the S&P 500 chart, review our weekly fundamentals-based SectorCast rankings of the ten U.S. business sectors, and then offer up some actionable trading ideas, including a sector rotation strategy using ETFs and an enhanced version using top-ranked stocks from the top-ranked sectors.

Market overview:

Despite the positive turn in the markets last week, this week has already brought a whole new set of issues to weigh on investors’ minds, starting with Sunday’s snap vote in Greece, which apparently has enough of the pain of austerity. Voters want to return to the past by rolling back austerity measures and thumbing their collective nose at the Eurozone and the broader international community of lenders. In reaction, the euro fell even further than it did in the face of the ECB’s stimulus announcement last week.

The ECB seeks to inflate asset prices and encourage hiring through an open-ended sovereign quantitative easing program that will inject 60 billion euros into European debt securities each month from March 2015 until at least September 2016. Heck, if it helped the U.S. recover, then why not try it everywhere? ECB President Mario Draghi, insisted that stimulus must be accompanied by reforms, because monetary policy alone will not be enough. But Europe still pines for the good old days that, unfortunately, are nothing more than nostalgia.

There is a very real danger that their QE won’t work like it did here, since the U.S. is considered the heart of the global economy and weakness here means weakness everywhere. Without structural reforms, the Eurozone could suffer the same fate as emerging markets in the 1990s. Global investors would love to see economic recovery and strength in European equities. But without an expectation of real…

]]>One Trillion Euros!

It sounds like a lot of money but, already today, it's worth $40Bn less than it was on Tuesday. Since Draghi's QE program doesn't begin until mid-March, at this pace (-$20Bn a day) by March 20th the whole Trillion will be gone – how's that for a magic trick?

Of course we don't think the Euro will keep falling to zero over the next 50 days but losing 2% per day of your entire net worth, even for just a couple of days, is bound to have some investors jumpy about their Euro-denomiated assets. That's why the Euro continues to slip towards parity today ($1 per Euro), hitting $1.11 this morning, after opening yesterday at $1.165.

Our mighty Dollar flew up to 95.77 this morning as investors flocked to safer harbors. It's really the US or nothing now as Abe has desroyed they Yen and China's Bad-Loan Ratio jumped 10% in Q4, now making up 1.29% of outstanding debt and forecast to climb to 1.6% by the year's end.

The 0.13 percentage-point increase in the bad-loan ratio was the biggest since the regulator began compiling quarterly data in 2004 and another 0.31% by the end of 2015 will, of course, make this the worst year on record.

Nonetheless, we are back on a bullish run in the Global Markets as everyone loves free money. Well, everyone who's rich, anyway – and anyone else doesn't matter, so party on people!

As I mentioned in yesterday's post, we were long in the morning, then flipped short after Draghi's announcement gave us an initial pop and then we flipped long again at 10:28 in our Live Member Chat Room and you can see how well those calls went for the day.

Those of you who read us regularly know that our long line for Natural Gas Futures (/TF) is $2.825 and we got anoter entry there yesterday as well with a very nice $750 per contract run back to $2.90 yet again (and up over $1,000 this morning at $2.925).

We had another opportunity to go long on oil (/CL) at $46 this morning, which…

What matters is the unveiling of Mr. Draghi's mad plan to boost the EU Economy (such as it is) through a bond-buying program of AT LEAST $55Bn per month. Anything less than that will be VERY DISAPPOINTING as the markets have already baked in some massive QE from Draghi and the ECB.

Realistically, there's almost nothing Draghi can do to "fix" Europe today or to meet the inflated expectations of the market.

Sure we may get a pop on a nice program but it's not likely to last and we still have the Greek elections on Sunday, which can throw the whole Union back into turmoil next week.

As you can see from the chart above, Draghi is expected to annound a stimulus program that already puts the ECB's balance sheet back to where it was at the height of the Greek crisis (the 2nd one) and that's without (officially) a new Greek crisis – so it's a Hell of a lot of firepower spent just to fight the deflationary bogey-man.

As noted by Bloomberg, Draghi still has to negotiate the tricky issue of buying government bonds at the negative yields currently prevailing across much of the euro zone. Paying for the privilege of storing money in, say, a three-year French bond effectively locks in a capital loss if you get back less than you paid.

A lawyer could argue that that constitutes "monetary financing" of governments, which is forbidden by the monetary union treaty. Draghi has already seen off one legal challenge to his power to buy bonds; that fight may be rekindled in the near future.

In the 1944 film “Gaslight,” a con artist manipulates his new wife psychologically to make her doubt her own sanity in a scheme to steal her inheritance. That’s increasingly the way to understand President Obama ’s behavior toward Congress and especially the tax increase he floated in Tuesday’s State of the Union. The only plausible rationale is that he thinks he can gain politically by driving Republicans nuts.

It goes downhill from there… The true State of the Union is going to be two years of gridlock and bickering with nothing much being done – not too different from the last 6 years or the rest of the century, which has seen average household income drop 10% while the top 1% tripled their wealth.

Can we really afford 2 more years of the same? Romney and Bush III want to make it 10 if they can. Joni Ernst (I know, who?) delivered the GOP response, which centered on a promise to repeal the Affordable Care Act, "which has hurt so many American Families," though she couldn't actually name one, when asked later. Instead, in her speech she said:

Growing up, I had only one good pair of shoes. So on rainy school days, my mom would slip plastic bread bags over them to keep them dry. But I was never embarrassed. Because the school bus would be filled with rows and rows of young Iowans with bread bags slipped over their feet. Our parents may not have had much, but they

…

]]>2,027 is our goal today for the S&P.

After that, we'll turn our attention to 2,040 tomorrow (the 10% line on our Big Chart) and we need 22 Nasdaq points to make that strong bounce line and then we'll look for 4,700 to come back on MORE FREE MONEY from the ECB on Thusday.

Our Bounce Lines from last were were (and still are):

Dow 17,280 (weak) and 17,460 (strong)

S&P 2,006 (weak) and 2,027 (strong)

Nasdaq 4,608 (weak) and 4,656 (strong)

NYSE 10,560 (weak) and 10,670 (strong)

Russell 1,172.50 (weak) and 1,185 (strong)

China made their own weak bounce overnight and that's already enough to get our Futures back on track but, as you can see from the chart on the left – this morning's bounce to 3,173 erases only 50 points out of a 275-point drop, which just happens to be the very definition of a weak bounce per our 5% Rule™.

So, to sum it up – we are likely to have strong bounces as traders are relieved to see China having weak bounces and, of course, in anticipation of MASSIVE stimulus coming from the ECB on Thursday – what could possibly go wrong?

As widely expected, the New Year has begun with plenty of volatility on high trading volume, as investors fear more than just a mild correction to start out the year. Despite the strong fundamentals here in the U.S., there are plenty of dangers around the rest of the world, and many fear that our cozy comfort at home simply cannot remain insulated for much longer.

In this weekly update, I give my view of the current market environment, offer a technical analysis of the S&P 500 chart, review our weekly fundamentals-based SectorCast rankings of the ten U.S. business sectors, and then offer up some actionable trading ideas, including a sector rotation strategy using ETFs and an enhanced version using top-ranked stocks from the top-ranked sectors.

Market overview:

I would like to start by saying that I have been traveling a lot lately, speaking with and presenting to financial advisors to promote our annual Baker’s Dozen portfolio, which is packaged as a unit investment trust by our strategic partner First Trust Portfolios. Many of these advisors are readers of this weekly article, and I want to take this opportunity to say that I have been humbled and gratified by your tremendous interest, enthusiastic reception, and warm hospitality. We are doing our best to sustain your loyalty and respect, and of course, to continue our record of outstanding performance.

Anyway, just when we all had grown accustomed to the old Wall of Worry and the scary bogeymen under the bed, there are new bogeymen peeking out from the bedroom closet. The new sources of worry are really bigger and scarier versions of existing ones, including the continued slide in oil prices (far further than hardly anyone believed possible), worsening recession and deflation in the Eurozone (leading to drastic actions), and the global metastasis of radical Islam (despite our successes in foiling their plots and destroying their infrastructure). News headlines seem to getting worse for both issues.

First, radical Islam has been with us for a long time, and of course it jumped to the forefront with 9/11. Today, splintered organizational infrastructures and terrorist training facilities have suffered highly-publicized defeats by the skilled efforts of the civilized world, but each of these successes consumes an incredible amount of time and resources, while the hateful ideology continues to spread…

It is a testament to the power and effectiveness of Dr. King's movement that, even to those of us who were alive at the time, it seems like it must have been another world where a man had to speak out against such injustice as if it wasn't obvious to the majority of people that segragation, whether by law or by practice, was an outrage.

Sadly, many of the lessons he taught us have already been forgotten, some great quotes:

Nonviolence is a powerful and just weapon. which cuts without wounding and ennobles the man who wields it. It is a sword that heals.

Nonviolence means avoiding not only external physical violence but also internal violence of spirit. You not only refuse to shoot a man, but you refuse to hate him.

It is not enough to say we must not wage war. It is necessary to love peace and sacrifice for it.

The hope of a secure and livable world lies with disciplined nonconformists who are dedicated to justice, peace and brotherhood.

Our STP finished the day yesterday up 92.5% and we're still very much on the bear side, up 16.6% for the week ($16,600) while the S&P fell 3.3% – AND THAT IS HOW YOU HEDGE! Yes, our bigger and bullish Long-Term Portfolio lost 1.8%, but that was "only" $8,600 so our net for the week is up $8,000 as our BE THE HOUSE – Not the Gambler strategy continues to pay off for the first two weeks of 2015.

Of course $8,000 a week is $400,000 a year (+66% to our $600K start), so it's not likely that we will be as much on the right side of trades all year as we were this week, but it's a fantastic example of how well our balanced portfolio approach works under extreme market conditions. We made only a couple of minor adjustments (like adding the TLT shorts) but, for the most part – we don't have to do anything to get that performance when we call the direction right.

Monday is a holiday in the US, so we're certainly not inclined to flip bullish today – or even neutral, for that matter. All of our weak bounce lines were broken, which is what we feared would happen on Tuesday. Fortunately, our 5% Rule™ prevented us from capitulating during the run-up last week and now we are reaping the rewards on the way down!

Oil hit $50 just after midnight, /NG topped out at $3.37, gasoline at $1.385 and the markets spiked up almost 1%. India cut their reserve rates 0.25% – a total surprise. Also, positive notes from China and /NKD is up from 16,600 yesterday to 17,200 just now (and I like /NKD short on that line with tight stops above).

Just two hours later, ALL HELL BROKE LOOSE and the Nikkei dropped 300 points (now more) and those /NKD shorts gained $1,500 in just two hours. That one was more luck than skill as the Swiss National Bank made a VERY SURPRISING announcement that they were removing their 3+-year currency peg to the Euro and that sent the EUR/CHF pair from the usual 1.20 all the way down to 0.85 before stablilizing at about 1.02, down 20% in minutes!

Needless to say, hedge funds who made the very usual, very normal short bet on the Swiss Frank are F'd this morning. As the Euro had been very weak recently, there were a large amount of short bets on the Franc (CHF) in expectations of the SNB stepping up their Euro-buying program to get back to their usual 1.20 goal.

But nooooooooooooooooooooo! They went the other way by 20% and, as I reminded our Members this morning, those wrong way currency contracts (and there are 1M of them on this chart) lose $1,100 PER PENNY move. That's $22,000 on a 0.20 move in CHF x 1M = $22Bn in losses this morning for currency traders. Someone is gonna have some 'splainin' to do!

According to today's report, the Global Economy will slow to a 3% growth rate, down 10% from the previously projected 3.4% calculated in June. That's a pretty alarming rate of decline in the 2nd half of the year, don't you think? The report adds to signs of a growing disparity between the U.S. and other major economies while tempering any optimism that a plunge in oil prices will boost output. Risks to the global recovery are “significant and tilted to the downside,” with dangers including a spike in financial volatility, intensifying geopolitical tensions and prolonged stagnation in the euro region or Japan.

“The global economy today is much larger than what it used to be, so it’s a case of a larger train being pulled by a single engine, the American one,” World Bank Chief Economist Kaushik Basu told reporters on a conference call. “This does not make for a rosy outlook for the world.”

The bank sees average oil prices falling 32 percent this year, a decline that’s historically associated with a boost to global GDP of about 0.5 percent. Yet the impact on growth may be smaller in 2015 and 2016 because of other headwinds including weak confidence that encourages saving rather than spending, and a “significant” income shift from oil-producing countries to those that are net consumers, the World Bank said.

In other words, all those things we have been telling you to worry about were actually things you should have been worried about. As I mentioned to you in Friday Morning's post, we added back $13,000 worth of TZA (ultra-short Russell) spreads in expectations of negative economic news this week. Those spreads have a $17,000 upside (130%) if the Russell fails to hold 1,170, which is right where we bounced off yesterday (the -2.5% line).

I'd say the market is like a roller-coaster but there are no roller-coasters that make moves this crazy. Unfortunately, all this zig-zagging up and down is only serving to exhaust the erstwhile dip buyers, who haven't been getting quite the easy ride they've become used to over the past few years.

More importantly, we are NOT making our Strong Bounce Lines per our 5% Rule™, which has kept us from chasing these bounces as we just haven't quite gotten over the hump at:

Dow 17,280 (weak) and 17,460 (strong)

S&P 2,006 (weak) and 2,027 (strong)

Nasdaq 4,608 (weak) and 4,656 (strong)

NYSE 10,560 (weak) and 10,670 (strong)

Russell 1,172.50 (weak) and 1,185 (strong)

As you can see, only the Dow has really cleared it's goal by any significant amount with the S&P right on the line and the NYSE and Russell pulling up the rear. All should be over at the open as we're getting a 1% pop in Europe, where inflation is so low that investors are CERTAIN that Draghi will come and save the day a week from Thursday (22nd) at the next scheduled meeting.

The Euro is…

]]>What an "impressive" recovery we had last week.

After starting out down 750 Dow points we took 500 of them back overall, which gives us a still-constructive picture on the weekly chart – much better than the dreaded head and shoulders formation we would have had if we had finished around 17,500.

So that should make the chart people happy and this morning the Futures are up a bit, even though oil is down 2.5% as Goldman Sachs took advantage of a sleepy Monday Morning to come out with a MAJOR DOWNGRADE ON OIL that calls for $41 oil in 3 months, down from their previously totally wrong forecast of $70 (for WTIC).

Since GS was "only" off by 42% in their previous forecast, of course their current forecast is moving the markets as the beautiful sheeple stampede out of long positions. We're thrilled to see GS send oil to new lows as it makes it cheaper for us to buy longs. Last week alone 35 rigs were shut down at Bakken (61 overall) and, as we already calculated in our ongoing oil study, the average rig pumps 1,000 barrels a day, which means 61 rigs takes 427,000 barrels out of inventory starting next week.

GS knows this and they know the bottom is much closer than April – they just want to force the retail buyers (including their own clients) out of long positions so they and their preferred clients can load up on longs and make a fortune when oil does come back.

You can see on their chart (left) that they are still projecting a $65 average for 2016 but GS knows (as do we) that the average investor has more like a 3-month time-frame, at most, and has no interest in what will happen a whole year from now – even if it could make them 50% if they simply make an investment now.

Fortunately, at PSW, we teach our Members not to be sheeple and, as I often say to our Members, "We don't care IF the game is rigged as long as we can understand HOW the…

]]>You're here to make money, right?

We do a lot of eductional posts on various topics but, once in a while it's a good idea to put these concepts to some kind of practical use. Recently we discussed "How to Get Rich Slowly" and, in that post, we talked about the great value of making a consistent 20% annual return and, to start the year off, we've put up over 20 long-term trade ideas for our Members in our Live Chat Room, as well as some in our Top Trade Alerts (Members Only).

Our entire Long-Term Portfolio was up 20% last year, as was our Income Portfolio when we closed it and our smaller, Short-Term Portfolio managed to bring that net up over 25% for the year. As always, our goal is to make 20% a year and it's OK not to make 20% EVERY year, what you really want to avoid is losing money. Warren Buffett wasn't a famous investor in 1965 – or 1975 for that matter and, in fact, 1973 and 1974 were poor years for Berkshire – but they avoided losses – and that's the key!

Buffett is also a value investor who plays the slow and steady game in accumulating wealth. Not every year is going to be a big winner and not every year will beat the S&P because we HEDGE our bets and the same hedges that stop you from losing too much on the way down, stop you from winning too much on the way up. That's OK though, because it's the CONSISTENCY that makes you rich. While virtually unknown in 1975, by 1985 Warren Buffett was known as one of the greatest investors of all time.

Why is that? Did he do anything different? No, not at all. What Buffett did was simply to continue to grind out those wins and let the magic of compound returns do the rest of the work for him. As you can see from the chart on the left, even making 20% for 10 years doesn't seem that dramatic (500% total gain, avg 50% a year) but, give it 10 more years and you…

]]>Wow, what a comeback!

Maybe the 4th time will be a charm as we once again attempt to break that top line on the Russell (along with our other indexes). Of course, if you zoom out to a monthly chart, you'd see that this saw-tooth patten can form what they call an "island top", which is a signal of possible rally exhaustion.

I know we're exhausted with all these ridiculous "rallies" that are spurred by talk of more stimulus whenever we threaten to fail a support line.

After getting burned in 2009, the Fed (and all the Feds) are simply terrified of a sell-off getting out of control and so, they have backed themselves into a corner of having to placate the markets every time they have so much as a sniffle, lest it turn into pneumonia.

As I've noted to our Members, when we have 5 days of selling with 782M shares transacted (SPY) while the S&P loses 5% and then you have 2 days of buying with 269M shares transacted – can you really call that a recovery? More than 3 times more money went out than went in and our original premise was that there was weak support due to low volume in the first place. How would 2 days of low-volume buying have fixed that? If anything, our support is shakier now than when we started.

This is why I have to keep making bearish calls – there is MASSIVE manipulation going on – you can't trust anything and it's OK if we don't make money on the way up – that we can always recover from – what we really want to avoid is LOSING money in a crash and blowing a fantastic opportunity to bottom fish because we're scrambling to get out of things that we chased because we were too impatient.